Every morning on my way to the office, I pass a small playground located in the middle of a residential area in lower Manhattan. Next to a sandbox and several swings, there is a see-saw that reminds me of my childhood. Growing up on the heavy side, my weight was a perfect tool to take advantage of the skinnier kids by gearing them high in the air on a long wooden see-saw. My secret mission, to take advantage of my weight on a wooden see-saw beam, got me in trouble a few times with the teachers, who reminded me that gearing up innocent kids was a wrong thing to do.
In many respects, the world of foreign exchange regulation is much like a playground. Retail clients sometimes get hurt while playing wildly and recklessly on the playground of the FX market, and regulators act like teachers or parents that oversee the free-spirited retail clients trying to speculate in the FX market in the hope of winning big. Just like children, retail clients are vulnerable. A wrong decision or a wild bet can cause vulnerability in this high stakes game. But is leverage to blame for retail clients' wrong bets?